Trading bots are the future to keep 100% control of your investment moneypassive income
The day I first heard about Bitcoin on Reddit, a friend had also called me to tell me about it. Being 22 years old in New York City is a trading bots are the future to keep 100% control of your investment moneypassive income struggle.
I sold it all and ditched my plans for a mining rig. My financial situation needed to be stabilized before I could invest in assets based on my philosophical beliefs. Bitcoin stayed in the news over the years. The price went up and down, silk road happened, the legality of it was called into question, exchanges were hacked, and people gained and lost millions of dollars. Ethereum hit the scene with the promise of using the blockchain for more than just currencies.
You could build decentralized apps on top of Ethereum and even new currencies. I wondered if I could take advantage of those swings by buying when the price was low, selling when it was high, and buying back in when the price dipped again.
In the same period I shut down my company, Bitfountainafter running it for 5 years. Bootstrapping my own company gave me an unprecedented amount of freedom. I lived in 4 countries, traveled to many more, and only worked a few hours per day.
However, since the company had run its course, I needed a new source of income. I applied for only one job as a software engineer. It was the kind of job people love - high salary, all the Silicon Valley benefits, friendly team, well funded company, challenging engineering problems. After three rounds of interview they decided not to move forward with me. I did want it. But I also feared losing my freedom. Gone would be the days where I could spontaneously book a flight to India with no return date.
Going through the interview process made the possibility of losing my freedom real. I went into panic mode searching for a way I could make money on my own. At this point I still owned Ethereum and the price was still swinging back and forth.
I signed up for two exchanges: I needed Poloniex as well because there were many cryptocurrencies being traded there Altcoins - cryptocurrerncies that are not BTC. Those are the first two exchanges that I used. Now I use others since each exchange has pros and cons. A live crypto exchange is intimidating at first glance. There are charts and numbers changing at the speed of sight. I felt overwhelmed but sat through the confusion to try and make sense of what I was looking at.
Soon I could see where to place orders to buy and sell, and the charts started to make sense too. As the month went on I spent hours trading. I made enough to pay my rent, so the possibility of making a living from this was validated.
I wanted to formalize my trading knowledge so I could do more than buy low and sell high. There had to be a real strategy to trading bots are the future to keep 100% control of your investment moneypassive income stuff. I read as many books as I could on trading stocks and foreign exchange markets. I trading bots are the future to keep 100% control of your investment moneypassive income a lot of mistakes. But eventually I found my rhythm and strategies. For myself, and most crypto traders, the goal is to increase the amount of Bitcoin we own.
For example, right now the price of 1 ETH Ethereum is 0. Another thing I need to make clear is the type of trading I do - day trading. All of my profits are converted back into BTC at the end of each trading day. Again, even though I buy and sell several Altcoins, at the end of the day my net worth is in Bitcoin. There are three reasons for this:. I earn more USD when the price of Bitcoin goes up against the dollar. Why was it important to clear this up? Several things trading bots are the future to keep 100% control of your investment moneypassive income on my mind the first time I had to do this.
What if I sell my BTC now and the price shoots up tomorrow? Yes, but your bills will be paid. Sell now so you can pay your rent. You can always hold out for more, but at the same time you are risking a loss. After a few months I got better at trading. I was earning more Bitcoin than I needed to cover my monthly expenses.
At the end of the month I sold only what I needed, and kept the rest of my net worth in Bitcoin. Around this time in my trading career it was getting to the point where I could have bought a Tesla or put a down payment on a house by selling my Bitcoin.
Do you sell your Bitcoin to realize your profit in USD? I can live a nice middle class lifestyle in Los Angeles. Or I can drive a flashy car while I rent a crappy apartment in Los Angeles. It all comes down to your values. In fact, if i see a chart like this I almost always ignore it:.
The wild bull runs are hard to find, hard to time properly, and easy to go in the opposite direction where you lose a lot. Those gains are only exciting if you understand how far they can get you.
Of course the numbers above assume you trade days per year. Not many people are willing to forego vacation and weekends to work as a full time crypto trader, even with numbers like that. Not only that but I also let my emotions control my trades. For example, I once purchased Stratis after the price dropped massively. My assumption was that on such a sharp decrease in price, it had to rebound eventually.
The price kept diving. I was constantly tuned into that chart waiting for an opportunity to sell back to Bitcoin. Now I have my strategy that I trading bots are the future to keep 100% control of your investment moneypassive income to without letting my emotions interfere.
I have a set of coins that I like trading so I only look at those charts. I have patterns and indicators that I look for on those charts so I can quickly flip through them. Within minutes I can set my orders, set alerts on my desired entry and exit prices, and walk away from the computer. As the market cap of crypto increases, be sure that the IRS is going to find out how to get their slice. And they will look into the past. I am not a tax advisor. This is a simple overview of what I keep in mind as I trade.
My accountant handles my taxes, and I advise you to get an accountant to do the same. Keep in mind that this is US-centric. You need to double check if this is the case in your country. The taxable event is when you sell your cryptocurrency for fiat.
How much tax you pay depends on how long you were holding the cryptocurrency. Buy crypto with fiat - no tax.
Sell crypto for fiat - pay ordinary income tax. Buy crypto with crypto - unclear, but does not seem to be a taxable event. This is where things get foggy. Consult your advisor, but as far as I know this is a like-kind exchange which is not taxable but must be reported to the IRS. The exchange you use will output all of these transactions so you can hand them to your accountant.
The IRS has clarified that a crypto to crypto exchange is not a like-kind exchange. The profit made from each transaction is taxed. If you are holding a currency for more than a year it is classified trading bots are the future to keep 100% control of your investment moneypassive income long term capital gains. This is another reason why I like keeping my net worth in Bitcoin. At least not right now. Passive income is great. After you make an initial investment, you mostly sit back and watch the money roll in.
Most cryptocurrencies are mined. You invest in a very strong computer and the electricity to run it, and you are rewarded with crypto for contributing to the network as a node that confirms blockchain transactions.
This is an alternative to mining that does not require vast amounts of electricity. The idea is that you stake the cryptocurrency that you own over a wifi connection.
That crypto that you stake is used to validate transactions on the blockchain, and you are rewarded more cryptocurrency for putting the currency you own in the pool.
One of the most reliable tools in my cryptocurrency investing toolbox is lending on the Poloniex exchange. It's the old-faithful, slow-but-steady, go-to champion of my passive investment strategies. And it's an answer to the age old question: Make more of it, of course! I'll be talking mostly about Poloniex, my favorite exchange for a number of reasons: But everyone has their own preferences.
Other exchanges support lending as well, and the general principles discussed here apply equally well to each of them, though the nitty gritty of the UI aspects will differ. There are two types of trades you can do on Poloniex: Whenever someone borrows money to open a short position, it's called trading on margin. Note that it's also possible to go long on margin by borrowing Bitcoin.
Trading bots are the future to keep 100% control of your investment moneypassive income rule of thumb for Poloniex is: The lenders make their profit on the interest they get when the loans are repaid by the margin traders.
And that kind of lending is the subject of this article. The last couple months, BTC lending rates to give one example have typically been between 0. That doesn't seem like much on first glance, but it adds up over time:. Typically on an upwards price spike, shorters will arrive in droves anticipating the subsequent dump and consume all of the available loans, driving interest rates up. But you have to be quick to take advantage, as rates change fast in these circumstances and won't stay high for very long.
Once the inevitable dump occurs, short sellers take profits and then loan demands subside again an interesting consequence of this behavior is that sudden rises in interest rates for no apparent reason can be an advance indicator that trading bots are the future to keep 100% control of your investment moneypassive income market thinks a large price movement is imminent.
Unless you're an expert trader I'm a crappy trader and not afraid to admit it this is a much safer way to make money than trading, and still way more than you would get from holding your money in a bank. Plus it's less work than analyzing charting patterns and watching trading positions all day long. Lending is just one component of what should be a balanced investment approach more on this trading bots are the future to keep 100% control of your investment moneypassive income.
So don't forget to take that into account when calculating expected profits. Like any investment strategy, you have to weigh the good against the bad and decide if lending is right for your circumstances. Regarding that second disadvantage, it's only really a problem if you are an active trader.
If you're like me, you have a long-term view and aim to make a little extra from lending while letting your core holdings gain value over time. Always leave some in reserve to take advantage of good opportunities as they come along. If I was a better trader, I might adjust those ratios a bit more toward the trading side. Okayyou say, sounds like a non-issue, but cryptomancer what do you mean by "risk of exchange being hacked"?
This is a good point to step into. Let's rewind to late Julyjust a month or so ago. I had ETH parked on the Bitfinex exchange and was making decent returns from lending, about 10 ETH per month at the time Bitfinex had much better interest rates than Poloniex when they first started offering ETH margin trading. But I had a two-week vacation to Malaysia coming up at the trading bots are the future to keep 100% control of your investment moneypassive income of August, and was a bit nervous about leaving my investments on the exchange unattended while I was gone.
So I turned off autorenew on all my loans and let the borrowers pay them back one by one, then on July 29 moved all my ETH off Bitfinex into my private Ethereum wallet.
The next day I left on vacation ready to have some fun, with my investments safely secured. A few days later, relaxing in a cafe with free wifi, I decided to check my usual crypto news sources and see what I was missing.
This headline was there to greet me:. Trading bots are the future to keep 100% control of your investment moneypassive income crapI thought, my blood turning cold. Reading further, I found out only Bitcoin had been stolen. So even if my ETH had still been on the exchange, it would have been safe.
Or so I thought, until several days later this gem came out:. The moral of the story is that although rare, exchange hacks are a fact of life in this young industry, and you can't really see them coming. The chances of being caught in one are definitely non-zero if you lend capital on exchanges over significant stretches of time.
Exchange risk is the 1 drawback of lending cryptocurrencies. But it can be mitigated by good risk management strategies. The more exchanges you spread it out across, the smaller your loss will be if any one exchange is hit by catastrophe.
For example, ETH is one of the core investments in my portfolio, which I intend to hold for many years. I don't care so much about my ETC and am willing to lose it if the exchange gets hacked again or ceases operations.
But right now, daily ETC interest rates have been holding steady at around 0. I figure that Bitfinex might actually be one of the safest exchanges right now, what with a systems overhaul and increased focus on security since re-opening. I might be wrong, but I'm willing to take that risk. Poloniex and other exchanges have a built-in way to protect against this possibility by force liquidating accounts that get themselves into trouble.
When you trade on margin, your account balance is used as collateral to protect against losses, and that balance determines the limit of how much you can actually borrow. If a trade turns into a disaster and unrealized losses become too high, after a certain threshold Poloniex will automatically close your position and pay back the loan from your account balance. Theoretically it's possible, when the market is extremely volatile, for prices to move fast enough that forced liquidation can't keep up and Poloniex can't get a good enough price to completely pay back the loan.
However, these cases are exceedingly rare. I've been lending on Poloniex for over a year and never suffered a single default on any of the thousands of small loans I've given out.
The actual mechanics of it are quite straightforward. Let's start by dissecting the controls on the Poloniex lending page and then I'll explain my preferred method. On the Transfer Balances screen you need to decide what cryptocurrency you want to lend, and then transfer some of it from your exchange or margin account into your lending account, as shown here:. Note that the Exchange, Margin, and Lending columns will only show the funds you actually have available to transfer between those accounts.
Capital that is locked up in orders or existing loans is not shown. Also, not every single cryptocurrency on Poloniex is available for margin trading and thus lending. If it doesn't have an entry in the Coin column, then you can't lend it. Once your lending account is funded, you're ready to let the good times roll! Click on Lending from the main menu, and you'll get this screen:.
My Balances - shows your free capital in each account, just like the Transfer Balances screen. To create new loan offers you must have a trading bots are the future to keep 100% control of your investment moneypassive income shown in the Lending column. Click on an entry in the Coin list to see the lending information for that specific cryptocurrency. Loan Demands - don't even look at this. Most people, when they open a margin position, don't really care what interest rate they have to pay.
The system will automatically loan out money at whatever the lowest offer rate happens to be at the time. That said, there is a feature that allows margin traders to specify they won't accept a loan if the interest rate is higher than a specified threshold. And that's where these loan demands come from. Loan Offers - this is a list of all available loans that lenders are currently offering, sorted by interest rate. The current lowest rate plus total amount being offered trading bots are the future to keep 100% control of your investment moneypassive income you a way to see how much demand there is for margin trading of this particular cryptocurrency.
Typically you will want to offer a competitive interest rate near the top of the offer list or your offer will rarely be taken since Poloniex automatically loans from the top of the offer list whenever a new margin position is opened. My Open Loan Offers - these are loan offers you have created, but nobody has taken the loan yet i. My Active Loans - when an open offer is taken by a margin trader, it moves to this list and you start making interest on it.
When someone pays back a loan, it will vanish from this list or move back to My Open Loan Offers if you have auto-renew turned on and the interest paid will trading bots are the future to keep 100% control of your investment moneypassive income added to your lending account balance shown in My Balances and the Offer BTC box. The green numbers in the Fees column represent the total interest accrued on each loan, which will be paid to you when the loan is closed by the borrower.
Always follow the above strategy religiously. After a while, it should get to be like muscle memory: Keep your money working for you in active loans all the time regardless of whether the current rates are high or not. That's better than setting too high rates and then having your money sitting around useless when your loan offers don't get taken. It's OK to have dozens of small loans open.
Typically you'll start with one or two big loans, and then those will fracture into smaller and smaller loans with various rates as time goes on. It makes my OCD twitch, but it's normal, don't worry about it. Also, your entire loan offer might not be taken all at once.
People could take small bites out of it, generating several active loans from one single loan offer. So there you have it. Now go forth and loan, my fellow Steemians. And may the interest rates be ever in your favor! For a different perspective on Poloniex lending, check out this excellent article by nxtblg. He offers some good case studies of lending Factom and Bitshares. Know other good articles on this subject? Feel free to share in the comments below! When I first started lending, I found myself wishing there was a comprehensive guide to show me the ropes.
But I couldn't find anything good, so eventually decided to just write one myself. That's exactly what I was wishing for!
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